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Building an Emergency Fund

I have to admit, I hate saving money. I wish I could be irresponsible and buy all the clothes and all the vacations and all the shiny things, but I know saving money is way more responsible and, in the future, will be better than all the things that catch my eye. Saving money is even harder when what I am saving for is disaster. I am talking about building an emergency fund.

It is not fun, nor is it exciting to build an emergency fund, but it is something you must do. Why? Because if you don’t, you could be doing more harm than good.

What is an Emergency Fund?

The unexpected happens, well, unexpectedly. And whatever it is that happens, it usually costs a ton of money to fix. An emergency fund is in place to help you pay for the costs of the unexpected. That could be the loss of a job, a medical emergency, a car accident, or an expensive home repair.

Most of the time, you need the money ASAP. This immediate need for cash could force you to drain your accounts or go into even greater debt. The emergency fund helps prevent that from happening.

How Much Do You Need?

In Dave Ramsey’s 7 Baby Steps, he says the first step is to save $1,000 as fast as you can. This is a good place to start. However, I also tend to disagree with Ramsey here. Before devout Ramsey fans start attacking me, let me first say that I am a huge fan of his. I am working his 7 steps and I am doing the debt snowball right now. And I understand why he’s saying only $1,000. It’s a reachable goal and one you can hit faster than, say, $3,000.

So, Why Do I Disagree?

I believe that how much you should save depends on your situation. In my opinion, you should have at least $1,000, but you may need more than that.

Why do I think it should be more? I blame March 2016 for that.

That month, my car was hit while I was stopped at a red light and had to be towed and repaired. I had to pay our deductible, which was $1,000. Granted, I got that back from the other driver’s insurance, it took three months. And before I got that money back, that same month our house was broken into. That cost us close to an additional $1,000 to get a new door installed. If we only had $1,000 in our emergency fund that month, we would not have been able to pay for both unexpected situations.

So how much do you need? I think it depends on a few factors. How many people are in your family? Are your kids clumsy? How old and reliable is your car? How much are your medical, dental, car insurance, and homeowners insurance deductibles?

For some, $1,000 may be enough. For others, it may be more. Again, I would suggest at least $1,000.

While I don’t think you should build your full emergency fund (6-8 months of expenses) before you focus on paying off your debt, you should get enough in there so you aren’t adding to your debt if something does happen. I feel comfortable with at least $3,000. However, my husband and I are incredibly unlucky (seriously, ask anyone who knows us!), so don’t base your amount on me! Take a look at your own costs, your own situation, and your own financial standing to see how much you may need and how much you can realistically save.

How Can You Build a Fund?

There are a number of tricks to saving money. Here are a few ideas.

Give yourself a deadline and plan accordingly. Create a timeline and a monthly savings goal based on that timeline.

Set your paycheck up so that a few bucks automatically goes into a separate account. That way, you won’t even see the money or have to physically take it out of your account yourself.

Put any money from your side hustle into your emergency fund. Once your fund is built up, you can enjoy the money or put it towards paying off your debts.

Give up an unnecessary expense and put that money toward your fund. Do you usually visit the coffee shop everyday? Make your own at home and put that $4 you would have spent that day into your fund instead.

Do a no spend day, week, or month. Put all the money you saved during that time into your fund.

Save your tax refund or bonus. It can be tempting to spend that hard earned, possibly unexpected money. But, if you get money back from your taxes or get a bonus at work, use those funds as your safety net.

Save your change. If something costs you $3.50 and you give the cashier a $5 bill, put that $1.50 towards your saving.